Based on the following cost data,items labeled (a)and (b)in the table below are which of the following amounts,respectively? $\begin{array}{lrr} \text { Number of units: } &1,500&3,000\\ \text { Total cost: } &\\ \text { Variable} &\$7,500&\$15,00\\ \text { Fixed} &\$6,000&\$6,000\\ \\ \text { Cost per unit:} &\\ \text { Variable } &\$5&(a)\\ \text { Fixed }&\$4&(b) \end{array}$

A) (a) = $3.00; (b) = $3.00 B) (a) = $5.00; (b) = $4.00 C) (a) = $2.50; (b) = $2.00 D) (a) = $5.00; (b) = $2.00 A) (a) = $3.00; (b) = $3.00 B) (a) = $5.00; (b) = $4.00 C) (a) = $2.50; (b) = $2.00 D) (a) = $5.00; (b) = $2.00

The following income statement is provided for Ramirez Company for the current year: $\begin{array}{lr} \text { Sales revenue (2,500 units } \times \$ 40 \text { per unit) } & \$ 100,000\\ \text { Cost of goods sold (variable; } 2,500 \text { units } \times \$ 16 \text { per unit) } & (40,000) \\ \text { Cost of goods sold (fixed) } & \underline{ (8,000)}\\ \text { Gross margin } & 52,000 \\ \text { Administrative salaries } & (12,000) \\ \text { Depreciation } & (8,000) \\ \text { Supplies }(2,500 \text { units } \times \$ 4 \text { per unit) } & \underline{ (10,000) }\\ \text { Net income } & \underline{\$ 22,000} \end{array}$ What amount was the company's contribution margin?

A) $50,000 B) $22,000 C) $52,000 D) $60,000 A) $50,000 B) $22,000 C) $52,000 D) $60,000

Based on the income statements of the three following retail businesses,which company has the highest operating leverage? $\begin{array}{c} \begin{array}{l} \\ \\ \text {Revenue}\\ \text {Variable costs}\\ \text { Contribution margin }\\ \text {Fixed costs}\\ \text {Net income}\\ \end{array} \begin{array}{lll} \text { Alpha}\\ \text { Company}\\ 200,000 \\ (95,000)\\ \$ 105,000 \\ (80,000) \\ \$ 25,000 \end{array} \begin{array}{c} \\ \text { Beta Company } \\ \$ 200,000 \\ (155,000) \\ \$ 45,000 \\ (20,000) \\ \$ 25,000 \end{array} \begin{array}{cc} \text { Gamma}\\ \text { Company}\\ \$ 200,000 \\ (125,000) \\ \$ 75,000 \\ (50,000) \\ \$ 25,000 \end{array} \end{array}$

A) Alpha Company B) Beta Company C) Gamma Company D) They all have same operating leverage A) Alpha Company B) Beta Company C) Gamma Company D) They all have same operating leverage

Complete the following table to indicate your understanding of fixed and variable cost behavior by inserting one of the following responses in each box: "Remain constant," "Increase," or "Decrease." \[\begin{array} { | l | l | l | } \hline & \begin{array} { l } \text { When Activity } \\ \text { Increases } \end{array} & \begin{array} { l } \text { When Activity } \\ \text { Decreases } \end{array} \\ \hline \text { Unit fixed costs } & & \\ \hline \text { Total fixed costs } & & \\ \hline \text { Unit variable costs } & & \\ \hline \text { Total variable costs } & & \\ \hline \end{array}\]

\[\begin{array} { | l | l | l | } \hlin

The following information is for Gable,Inc.and Harlowe,Inc.for the recent year. \[\begin{array} { l r r r } & \text { Gable, Inc. } & \text { Harlowe, Inc. } \\ \text { Sales } & \$ 800,000 & \$ 800,000 \\ \text { Variable costs } & \underline{ 400,000 }& \underline{200,000 }\\ \text { Contribution margin } & 400,000 & 600,000 \\ \text { Fixed costs } & \underline{200,000 } & \underline{ 400,000} \\ \text { Income from operations }& \underline{ \$ 200,000 }& \underline{ \$ 200,000} \end{array}\] What total amount of net income will Harlowe,Inc.earn if it experiences a 10 percent increase in revenue?

A) $180, 000 B) $80,000 C) $260,000 D) $20,000 A) $180, 000 B) $80,000 C) $260,000 D) $20,000

The following income statement is provided for Vargas,Inc. \[\begin{array} { l r } \text { Sales reverule (2,500 urits } \times \$ 60 \text { per unit) } & \$ 150,000 \\ \text { Cost of goods sold (variable; } 2,500 \text { urits } \times \$ 20 \text { per unit) } & ( 50,000 ) \\ \text { Cost of goods sold (fixed) } & \underline{ ( 8,000 )} \\ \text { Gross margin } & 92,000 \\ \text { Adrninistrative salaries } & ( 42,000 ) \\ \text { Depreciation } & ( 10,000 ) \\ \text { Supplies } ( 2,500 \text { urits } \times \$ 4 \text { per unit) } & \underline{( 10,000 )} \\ \text { Net income } & \underline{ \$ 30,000} \\ \end{array}\] What is this company's magnitude of operating leverage?

A) 3.07 B) 0.33 C) 3.00 D) 1.67 A) 3.07 B) 0.33 C) 3.00 D) 1.67

The following information is given regarding driving lessons provided by Arrive Alive Company over several spans of time: \[\begin{array} { l r r r } & & { \text { Length of Tine } } \\ & \text { TODAY } & \text { ONE YEAR } & \text { FIVE YEARS } \\ \text { Total cost of lessons } & \$ 600 & \$ 110,000 & \$ 508,000 \\ \text { Number of lessons } & 50 & 10,000 & 55,000 \end{array}\] Select the incorrect statement from the following.

A) The average cost per lesson over the five-year period was $9.24. B) Based on the most current information, the cost per lesson was $12.00. C) The average cost based on the total five-year period is probably the most appropriate cost for pricing purposes. D) The selection of the most appropriate time span for calculating the average cost often requires considerable judgment. A) The average cost per lesson over the five-year period was $9.24. B) Based on the most current information, the cost per lesson was $12.00. C) The average cost based on the total five-year period is probably the most appropriate cost for pricing purposes. D) The selection of the most appropriate time span for calculating the average cost often requires considerable judgment.

Based on the following operating data,the operating leverage is: \[\begin{array} { l r } \text { Sales } & \$ 500,000 \\ \text { Variable costs } & \underline{280,000} \\ \text { Contribution margin } & 220,000 \\ \text { Fixed costs } & \underline{180,000} \\ \text { Income from operations }& \underline{\$ 40,000} \\ \end{array}\]

A) 0.18 B) 5.50 C) 1.22 D) 12.5 A) 0.18 B) 5.50 C) 1.22 D) 12.5

Exam 2: Cost Behavior, operating Leverage, and Profitability Analysis

Based on the following cost data,items labeled (a)and (b)in the table below are which of the following amounts,respectively? Number of units: 1,500 3,000 Total cost: Variable \7 ,500 \1 5,00 Fixed \6 ,000 \6 ,000 Cost per unit: Variable \5 (a) Fixed \4 (b)

(Multiple Choice)

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Question 81

The following income statement is provided for Ramirez Company for the current year: Sales revenue (2,500 units \times\ 40 per unit) \ 100,000 Cost of goods sold (variable; 2,500 units \times\ 16 per unit) (40,000) Cost of goods sold (fixed) Gross margin 52,000 Administrative salaries (12,000) Depreciation (8,000) Supplies (2,500 units \times\ 4 per unit) Net income What amount was the company's contribution margin?

(Multiple Choice)

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Question 82

Based on the income statements of the three following retail businesses,which company has the highest operating leverage? Revenue Variable costs Contribution margin Fixed costs Net income Alpha Company 200,000 (95,000) \ 105,000 (80,000) \ 25,000 Beta Company \ 200,000 (155,000) \ 45,000 (20,000) \ 25,000 Gamma Company \ 200,000 (125,000) \ 75,000 (50,000) \ 25,000

(Multiple Choice)

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Question 83

In the graph below,which depicts the relationship between units produced and unit cost,the dotted line depicts which type of cost per unit?

(Multiple Choice)

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Question 84

The contribution margin format income statement classifies costs according to their behavior patterns.

(True/False)

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Question 85

Which of the following equations can be used to compute a firm's magnitude of operating leverage?

(Multiple Choice)

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Question 86

Complete the following table to indicate your understanding of fixed and variable cost behavior by inserting one of the following responses in each box: "Remain constant," "Increase," or "Decrease." When Activity Increases When Activity Decreases Unit fixed costs Total fixed costs Unit variable costs Total variable costs

(Essay)

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Question 87

Risk refers to the possibility that sacrifices may exceed benefits.

(True/False)

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Question 88

One way that computing an average cost per unit facilitates management decision making is that managers are provided more timely and more relevant cost information.

(True/False)

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Question 89

The following information is for Gable,Inc.and Harlowe,Inc.for the recent year. Gable, Inc. Harlowe, Inc. Sales \ 800,000 \ 800,000 Variable costs Contribution margin 400,000 600,000 Fixed costs Income from operations What total amount of net income will Harlowe,Inc.earn if it experiences a 10 percent increase in revenue?

(Multiple Choice)

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Question 90

Frazier Company sells women's ski jackets.The average sales price is $275 and the variable cost per jacket is $175.Fixed Costs are $1,350,000.If Frazier sells 15,000 jackets,the contribution margin will be:

(Multiple Choice)

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Question 91

The BRC Company is considering the introduction of a new line of high end electronics.Because there is considerable uncertainty with regard to the demand for the products,the company would probably be served better by a variable cost structure.

(True/False)

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Question 92

The following income statement is provided for Vargas,Inc. Sales reverule (2,500 urits \times\ 60 per unit) \ 150,000 Cost of goods sold (variable; 2,500 urits \times\ 20 per unit) (50,000) Cost of goods sold (fixed) Gross margin 92,000 Adrninistrative salaries (42,000) Depreciation (10,000) Supplies (2,500 urits \times\ 4 per unit) Net income What is this company's magnitude of operating leverage?

(Multiple Choice)

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Question 93

The following information is given regarding driving lessons provided by Arrive Alive Company over several spans of time: Length of Tine TODAY ONE YEAR FIVE YEARS Total cost of lessons \ 600 \ 110,000 \ 508,000 Number of lessons 50 10,000 55,000 Select the incorrect statement from the following.

(Multiple Choice)

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Question 94

A disadvantage of the high-low method is that the high point and low point may not be representative of the total data set available.

(True/False)

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Question 95

Based on the following operating data,the operating leverage is: Sales \ 500,000 Variable costs Contribution margin 220,000 Fixed costs Income from operations

(Multiple Choice)

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Question 96

Hard Nails and Bright Nails are competing nail salons.Both companies have the same number of customers.Both charge the same price for a manicure.The only difference is that Hard Nails pays its manicurists on a salary basis (i.e.,a fixed cost structure)while Bright Nails pays its manicurists on the basis of the number of customers they serve (i.e.,a variable cost structure).Both companies currently make the same amount of net income.If sales of both salons increase by an equal amount,Hard Nails:

(Multiple Choice)

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Question 97

How does fixed cost per unit behave when volume decreases?

(Essay)

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Question 98

Cannon Company operates a clothing store that reported the following operating results for the current year: $\text { Income Statement }$ Sales revenue \ 2,000,000 Cost of goods sold (1,200,000) Gross margin \ 800,000 Employee commissions and bonuses ( 5\% of sales) (100,000) Depreciation expense (150,000) Salaries expense (260,000) Shipping and delivery expense (2\% of sales) (40,000) Advertising expense (80,000) Net income \ 170,000 Required: Prepare an income statement for Cannon Company using the contribution margin format.

(Essay)

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Question 99

Costs that might be incurred by service,merchandising,and manufacturing companies are described below: Required: Classify each cost as variable (V)or fixed (F)with respect to volume or level of activity.

(Essay)

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Question 100

Based on the following cost data,items labeled (a)and (b)in the table below are which of the following amounts,respectively? Number of units: 1,500 3,000 Total cost: Variable \7 ,500 \1 5,00 Fixed \6 ,000 \6 ,000 Cost per unit: Variable \5 (a) Fixed \4 (b)

In the graph below,which depicts the relationship between units produced and unit cost,the dotted line depicts which type of cost per unit?

The contribution margin format income statement classifies costs according to their behavior patterns.

Which of the following equations can be used to compute a firm's magnitude of operating leverage?

Risk refers to the possibility that sacrifices may exceed benefits.

One way that computing an average cost per unit facilitates management decision making is that managers are provided more timely and more relevant cost information.

Frazier Company sells women's ski jackets.The average sales price is $275 and the variable cost per jacket is $175.Fixed Costs are $1,350,000.If Frazier sells 15,000 jackets,the contribution margin will be:

The BRC Company is considering the introduction of a new line of high end electronics.Because there is considerable uncertainty with regard to the demand for the products,the company would probably be served better by a variable cost structure.

The following information is given regarding driving lessons provided by Arrive Alive Company over several spans of time: Length of Tine TODAY ONE YEAR FIVE YEARS Total cost of lessons \ 600 \ 110,000 \ 508,000 Number of lessons 50 10,000 55,000 Select the incorrect statement from the following.

A disadvantage of the high-low method is that the high point and low point may not be representative of the total data set available.

Based on the following operating data,the operating leverage is: Sales \ 500,000 Variable costs Contribution margin 220,000 Fixed costs Income from operations

How does fixed cost per unit behave when volume decreases?

Costs that might be incurred by service,merchandising,and manufacturing companies are described below: Required: Classify each cost as variable (V)or fixed (F)with respect to volume or level of activity.

Management Accounting and Corporate Governance

Analysis of Cost, volume, and Pricing to Increase Profitability

Cost Accumulation,tracing,and Allocation

Cost Management in an Automated Business Environment: ABC, ABM, and TQM

Relevant Information for Special Decisions

Planning for Profit and Cost Control

Performance Evaluation

Responsibility Accounting

Planning for Capital Investments

Product Costing in Service and Manufacturing Entities

Job-Order, process, and Hybrid Costing Systems

Financial Statement Analysis

Statement of Cash Flows

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